sunny.png
Wednesday September 28th, 2022 12:34PM

Stocks rally after Fed's big rate hike to fight inflation

By The Associated Press
Related Articles
  Contact Editor

NEW YORK (AP) — Stocks rallied in a roller-coaster day of trading on Wall Street Wednesday after the Federal Reserve hiked interest rates by the biggest margin since 1994, but also said such mega-hikes would not be common. The Fed did signal that more increases are on the way as it tries to tackle the worst inflation in four decades. The increase of three-quarters of a percentage point was three times as big as the central bank usually makes. The S&P 500 rose 1.5% after several sudden moves up and down immediately after the Fed’s announcement. Treasury yields fell.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.

NEW YORK (AP) — Stocks rose in roller-coaster trading on Wall Street Wednesday following the Federal Reserve's sharpest hike to interest rates since 1994, and its assurance that such mega-hikes would not be common.

The S&P 500 was 1.3% higher in afternoon trading after several sudden moves up and down immediately after the Fed's announcement. Treasury yields were sharply lower but also jerked up and down as investors struggled to digest the third interest-rate hike of the year and what Chair Jerome Powell said about future moves.

The Dow Jones Industrial Average swung between a gain of 530 points and a loss of nearly 180 before sitting on a gain of 344 points, as of 3 p.m. Eastern time. It was up 1.1% at 30,709, while the Nasdaq composite was 2.5% higher.

The Fed hiked its key short-term interest rate by three-quarters of a percentage pint, triple the usual move, in its quest to beat back high inflation. Powell said the Fed may consider an increase of either half a point or three-quarters of a point at its next meeting in July before increases may fall back to more normal amounts.

“The Fed is serious about inflation,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. “Instead of trying to let it naturally fall they want to give it a good shove even if it means slowing growth” for the economy.

Investments around the world, from bonds to bitcoin, have tumbled this year as high inflation forces the Federal Reserve and other central banks to swiftly remove supports propped underneath markets early in the pandemic. The fear is that too-aggressive hikes in interest rates will force the economy into a recession.

The Fed is “not tying to induce a recession now, let's be clear about that,” Powell said. He said Wednesday's big increase was about the Fed speeding up the move to get interest rates back to normal more than anything, calling it “front-end loading.”

Even if central banks pull off the delicate trick of slowing the economy just enough to stamp out inflation, without a recession, higher interest rates push down on prices for investments regardless. The hardest-hit have been the investments that soared the most in the easy-money era of ultralow interest rates, including high-growth technology stocks and cryptocurrencies.

Treasury yields have shot to their highest levels in more than a decade on expectations for a more aggressive Fed, though they eased Wednesday following Powell's comments. A disappointing report showing that sales at U.S. retailers unexpectedly slumped in May from April contributed. So did a weaker-than-expected report on manufacturing in New York state.

The economy is still largely holding up amid a red-hot job market, but it has shown some signs of distress recently. A preliminary reading on consumer sentiment last week, for example, sank to its lowest reading on record due in large part to high gasoline prices.

The two-year Treasury yield fell to 3.26% from 3.45% late Tuesday, with the biggest move happening after Powell said not to expect 0.75 percentage point rate hikes to be common. The yield on the 10-year Treasury pulled back to 3.36% from 3.48%.

“The bond market right now is driving the broader market and that will continue," said Jay Hatfield, CEO of Infrastructure Capital Advisors.

Cryptocurrency prices continued to sink, and bitcoin dropped as low as $20,087.90, nearly 71% below its record of $68,990.90 set late last year. It was down 2.2% at $21,652 in afternoon trading, according to CoinDesk.

Its tumble has worsened as investors ramp up their expectations for how aggressively the Fed will move on interest rates.

A week ago, almost no one was expecting a hike of three-quarters of a percentage point, which is the widespread expectation for this afternoon. But a stunning report on Friday sent shudders through markets when it showed inflation at the consumer level unexpectedly accelerated last month.

It dashed hopes on Wall Street that inflation may have already peaked, and the data seemingly pinned the Federal Reserve into having to get more aggressive. The Fed has gotten criticism for moving too slowly earlier to rein in inflation. Other central banks around the world are also raising interest rates, adding to the pressure.

Japan’s central bank has kept rates near record lows. That has caused the yen to fall to two-decade lows against the U.S. dollar as traders shift capital in search of higher returns.

The war in Ukraine has helped send prices for oil soaring because the region is a major producer of energy. COVID infections in China, meanwhile, have led to the closure of factories and disrupted supply chains.

It all helped pull the S&P 500 down more than 20% from its record set in early January, putting Wall Street into what investors call a bear market.

Markets were more relaxed Wednesday, with stocks climbing across Europe and some of Asia.

Germany's DAX returned 1.4%, and the French CAC 40 rose 1.3% after the European Central Bank called an unscheduled meeting to address worries that rising interest rates will cause turmoil in the continent's bond market. The central bank did not give a detailed plan, but it said it would act if needed against “fragmentation” as yields for some European countries' bonds rise much more than for others.

Stocks in Shanghai gained 0.5% after government data showed Chinese factory activity rebounded in May as anti-virus controls that shut down businesses in Shanghai and other industrial centers eased. Stocks in Seoul and Tokyo, though, fell more than 1%.

___

AP Business Writers Damian J. Troise and Joe McDonald contributed.

  • Associated Categories: Associated Press (AP), AP National News, AP Online National News, Top General short headlines, AP Business, AP Business - Economy, AP Business - Financial Markets, AP Business - Industries, AP Business - Financial Services
© Copyright 2022 AccessWDUN.com
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
Buffalo supermarket gunman charged with federal hate crimes
The gunman who killed 10 Black people in a racist attack at a Buffalo supermarket has been charged with federal hate crimes that could potentially carry a death penalty
3:17PM ( 2 minutes ago )
Fed attacks inflation with its largest rate hike since 1994
The Federal Reserve intensified its drive to tame high inflation by raising its key interest rate by three-quarters of a point — its largest hike in nearly three decades — and signaling more large rate increases to come that would raise the risk of another recession
3:17PM ( 2 minutes ago )
Retail sales in May slip 0.3% amid surging inflation
Americans trimmed their spending unexpectedly in May compared with the month before, underscoring how surging inflation on daily necessities like gas is causing them to be more cautious about buying discretionary items
3:09PM ( 11 minutes ago )
Associated Press (AP)
Michigan cop charged with murder in Lyoya's death is fired
Officials say a Michigan police officer charged with murder after shooting Patrick Lyoya in the back of the head has been fired
2:48PM ( 32 minutes ago )
Stocks hold gains after Fed hikes rates to fight inflation
Stocks are still higher on Wall Street Wednesday, but they’re swinging up and down following the Federal Reserve’s biggest hike to interest rates since 1994 in its quest to beat back inflation
2:25PM ( 54 minutes ago )
Festival founded by Dua Lipa's father decamps from Kosovo
An international music festival founded by the father of singer-songwriter Dua Lipa to promote his native Kosovo has led to recriminations for the small European country after it lost the event to neighboring Albania
2:06PM ( 1 hour ago )
AP Business
Wall Street rallies after dismal week as Fed decision looms
U.S. stocks are rallying Wednesday and are on track for their first gain in six days
12:15PM ( 3 hours ago )
EU sues UK over move to rewrite post-Brexit trade rules
The European Union is suing Britain over its move to rewrite the trade rules agreed to when the country exited the EU two years ago
12:12PM ( 3 hours ago )
Independent booksellers grew in number, diversity in 2021
Independent booksellers are growing in number and becoming more diverse
11:45AM ( 3 hours ago )
AP Business - Economy
US futures rise ahead of Fed rate hike decision
U.S. markets are poised to rebound ahead of expected action from the Federal Reserve to raise interest rates in its ongoing effort to cool inflation
8:17AM ( 7 hours ago )
Europe stocks up, Asia mixed ahead of Fed rate hike decision
Asian stock markets are mixed while Europe opened higher ahead of a Federal Reserve decision on how sharply to raise interest rates to cool inflation
5:53AM ( 9 hours ago )
Asian stocks mixed ahead of Fed rate hike decision
Asian stock markets are mixed ahead of the Federal Reserve’s announcement of how sharply it will raise interest rates to cool U.S. inflation
2:43AM ( 12 hours ago )
AP Business - Financial Markets
GAO: No sign US tracked if its aid was used in Yemen attacks
A government report says there’s no sign the Pentagon or the State Department investigated whether U.S. military aid was used in Saudi or Emirati strikes alleged to have killed civilians in Yemen
12:07PM ( 3 hours ago )
Russia targets depot in western Ukraine, advances in east
The Russian military says it has used long-range missiles to destroy a depot in Ukraine's western Lviv region where ammunition for NATO-supplied weapons was being stored
11:41AM ( 3 hours ago )
Russia reduces natural gas through European pipeline again
Russia’s Gazprom has announced a reduction in natural gas flows through a key European pipeline for the second day in a row, hours after Germany’s vice chancellor said its initial move appeared to be political rather than a result of techical problems
10:52AM ( 4 hours ago )
AP Business - Industries
Treasury bond yield inversion raises worries over recession
One of the more reliable warning signals for an economic recession started blinking again
4:53PM ( 22 hours ago )
EXPLAINER: Recession fears grow. Just how high is the risk?
Inflation is at a 40-year high
1:36PM ( 1 day ago )
US producer prices soar 10.8% in May as energy costs spike
U.S. producer prices surged 10.8% in May from a year earlier, underscoring the ongoing threat to the economy from a bout of inflation that shows no sign of slowing
9:17AM ( 1 day ago )
AP Business - Financial Services
Retail sales in May slip 0.3% amid surging inflation
Americans trimmed their spending unexpectedly in May compared with the month before, underscoring how surging inflation on daily necessities like gas is causing them to be more cautious about buying discretionary items
3:09PM ( 11 minutes ago )
FDA advisers move COVID-19 shots closer for kids under 5
COVID-19 shots for infants, toddlers and preschoolers in the U.S. have moved a step closer
3:05PM ( 14 minutes ago )
John Hinckley Jr. freed from court oversight after decades
John Hinckley Jr. has been freed from court oversight
3:02PM ( 17 minutes ago )
John Hinkley Jr. freed from court oversight after decades
John Hinckley Jr. has been freed from court oversight
2:59PM ( 21 minutes ago )
Odessa, Texas, without drinking water as temperatures soar
Crews are working to restore water service to the West Texas city of Odessa, where residents have been without water amid scorching temperatures this week after an aging pipe broke
2:56PM ( 23 minutes ago )